Washington, DC: On December 6, 2023, the Executive Board of the International Monetary Fund (IMF) concluded the 2023 Article IV Consultation with Belgium.[1]
Though resilient to shocks, the Belgium economy and financial sector face significant cyclical and structural challenges and risks to the outlook. Owing to a strong and timely policy response, the economy resisted the covid and energy crises. Still, growth is slowing, core inflation remains high, and the pandemic and energy crisis increased already-high public debt and structural fiscal deficits. An aging population and the climate transition are putting pressure on public finances while low productivity and labor participation are dampening potential growth. Risks related to geopolitical fragmentation, global financing conditions, and the domestic political cycle could worsen the outlook.
Executive Board Assessment[2]
Executive Directors agreed with the thrust of the staff appraisal. They commended the Belgian authorities' strong and timely policy responses, which helped the economy and financial sector withstand a series of shocks in the past three years. Noting cyclical and structural challenges ahead as well as risks to the outlook, Directors encouraged the authorities to undertake fiscal consolidation while simultaneously implementing structural reforms to increase potential growth.
Directors stressed that an expenditure-led, sustained fiscal consolidation is needed to reduce debt vulnerabilities, restore buffers to absorb future shocks, support disinflation, and ultimately ensure the sustainability of the social model. In this context, many Directors encouraged the authorities to consider a frontloaded adjustment. Directors agreed that the fiscal consolidation should primarily focus on rationalizing spending and increasing its efficiency at all levels of government, while preserving high-return public investment to boost potential growth.
Directors emphasized that fiscal reforms are key to sustaining the consolidation efforts. They agreed that tax reforms should proceed to help improve labor force participation and make the tax system fairer, while efforts to further strengthen tax administration will help improve tax collections. Given population aging, Directors called for further reforms to ensure pension sustainability and achieve efficiency gains in healthcare. They underscored that fiscal management would benefit from enhanced coordination among federal entities, within a consistent consolidation plan and strict spending limits applied at all levels of government.
Directors welcomed the findings of the Financial System Stability Assessment that the financial sector remains resilient. Noting rising systemic risks from cooling real estate markets, higher interest rates, and weaker economic activity, they recommended that financial policies continue to focus on preserving resilience and building up buffers to absorb losses when needed. In this context, Directors welcomed the recent macroprudential policy tightening. They underscored that the well-developed financial policy framework could be buttressed more by further strengthening supervision, crisis management and resolution preparedness, the macroprudential framework, and systemic risk assessment.
Directors stressed that continuing structural reforms is critical for lifting productivity and potential growth, advancing the green transition, and improving competitiveness. They noted the need to continue reforms in tax policy, social benefits, and the labor market— including to increase its flexibility, address disincentives to work, and promote greater inclusion in employment. Reducing skill mismatches would also help. Directors encouraged deeper product-market reforms to help raise productivity. They underscored that efforts to advance the green transition should be accelerated in a coordinated manner among federal entities.
It is expected that the next Article IV Consultation with Belgium will be held on the standard 12-month cycle.
Table 1. Belgium: Selected Economic Indicators, 2022-24
Sources: Haver Analytics, Belgian authorities, and IMF staff projections. 1/ Contribution to GDP growth. |
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[1]Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.
[2]At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings-up can be found here:http://www.imf.org/external/np/sec/misc/qualifiers.htm.
